Adaptation of Supply Management towards a Hybrid Culture: Guangzhou Honda Automobile - Case Study Example

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• Introduction

Globalization has connected world economies through the medium of less restrictive trade practices. This allowed markets of each economy to expand and achieve growth. However, this has increased the dependence of one economy on the other. The way of integration has also raised many challenges, among them the cultural difference was one of the trickiest to deal with. (Markovic, 2012)

In 1990s when recession hit the Japanese market the manufacturers faced tremendous difficulty in continuing their production. The country experienced an economic growth of only 1% since 1992 till early 2000 (Siddiqui, 2009).

Figure 1: Economic Growth Rate of Japan

(Source: Aoki, Delbridge and Endo, 2011)

Japanese automobile industry suffered as a result of the recession and its global market share fell to 30% by early 2000s. In order to continue their business, governments of the respective countries concentrated on devising strategies that could save the industries from further deterioration and formulated the strategy of shifting their production to the developing economies. This way, they could exploit the opportunities of cheap skilled and unskilled labour, along with grabbing larger market share of those economies. Japanese automobile manufacturing companies entered the market of China but faced a bigger problem of coping with culturally different Chinese suppliers. Japanese manufacturers were required to adapt to the organizational culture of the Chinese firms which resulted in hybridisation (Flynn et al., 2013).

Hybridisation to the formulation of new ways for the management of one organization to selectively adopt changes of a new business environment when it expands its production to other countries either through green field or brown field Foreign Direct investment (Becker-Ritterspach, 2006).

This paper focuses on the problems associated with the supply management culture, where there is a dominance of national identities over organizational culture. The case study on the joint venture between Honda and Guangzhou Automobile Group has been provided to illustrate the effect of cultural difference upon Japanese automobile manufacturing company doing business in Chinese soil. This paper also explains how the Japanese company incorporated their business culture in Chinese industrial environment to create a hybrid business culture within the joint venture company.

• Literature Review

The supply chain management (SCM) of an enterprise refers to the whole system of planning, control, coordination, and optimization of various processes to ensure that the desired product reaches the customer at the right time in the most cost effective way. In order to have an efficient supply management, there needs to be perfect coordination between manufacturers, retailers, suppliers and distributors (Wei and Xiang, 2013). According to Suthikarnnarunai (2008), automobile industry is the world’s manufacturing activity. This concept of SCM received its share of importance during 1980s when Japanese manufacturing system was the central point of research because of Toyota’s introduction of “lean manufacturing technique” to the world (SAE, 2016). Big production houses, in 1980s, became concerned about the increasing cost of their production and were forced to acquire more information regarding supply chain management. Previously, there existed the practice of arms-length supply chain management but soon the entire production system learned about the collaborative relationship between suppliers and customers. This resulted in the formation of long-term contracts which invoked trust and mutual benefit into the supply chain management (Jia et al., 2016).

Japan during 1980s established its assembly plants in countries like, Mexico, USA, Australia, UK, etc. as a strategic move towards better supply management (Shimokawa, 2010). The supply management system of Japan involved long-term contracts between buyers and suppliers. They work in collaboration to improve their organisational structure (Jia, et al., 2016). The buyers hold a strong leverage over the suppliers. There is trust, mutual agreement and loyalty in decision-making, as all the aspects are discussed between buyers and suppliers and ultimately a consensus is reached.

In Chinese society, there is a high influence of traditional values (owing to Chinese belief in Confucianism). The hierarchy in society, organisations and communities provide a strict structure to the private life of the people. There is a high integration of the concepts of “guanxi” and “mianzi” in the business structure of China. Guanxi is not just sharing business cards or meal together, but it is the way of building relationships contacts and network based on trust and reciprocity. For example, while changing jobs Chinese employees can take their contacts with them because they have earned them through their guanxi, the company has no right over them. In some cases, competitive information, within the guanxi network of an employee are also shared between the individuals (Irwin, 2012).

Mianzi refers to the pride and prestige that one acquires because of their positional hierarchy. Face value plays an important role. This system prevents employees from open confrontation and conflicts with their superiors. In order to keep their own ‘face’ there is practice of giving gifts, invitations to family events, etc. However, such practices are executed while preserving the core values of the organisation (Irwin, 2012).

• Difference in Trading Culture between Japan and China

In order to understand the complexities arising from the cultural differences, it is very important to know what these differences are and how they affect their business practices.

The countries share same roots yet they have distinctive cultural differences. Firstly, the decision-making process in Japan is known as ‘nemawashi’, is achieved through discussion and the ultimate result is obtained through consensus. There is coordination and fellowship among the employees at all levels of organisational hierarchy. On the other hand, Chinese employees share a transactional leadership culture, where cooperation and harmony is achieved through execution of orders by the employees. Therefore, there is a wide gap between leaders (managers or supervisors) and their subordinates.

Secondly, the societal set-up has always played an important role in devising the structural blueprint for organizations’ foundation (Chance, 2013). Japanese people have a strong bonding with their family; but when it comes to the question of their responsibility and accountability towards their company, even family ties are rated as second in position. The workers share a collaborative relation with their managers and suppliers. The culture of long-term employment is associated with pay according to positional hierarchy i.e., higher the post, greater is the pay (Jia et al., 2016). Such norms enable loyalty from the employees as they are not able to frequently shift from one job to another. Teams under Japanese organisations show greater strength and fellowship owing to mutual agreement and trust (Lincoln and Shimotani, 2009).

Chinese people are more family oriented and their business relations are also built upon family ties, as they hardly trust others who are not a part of their families. Guanxi is the foundation of Chinese society and is deeply embedded in their business culture. However, members of the extended family can be trusted and brought under their guanxi network (IBM, 2005).

Thirdly, the contracts in Japanese firms are not explicitly documented; the acceptance of collaboration between suppliers and firm, urges each party to maturely maintain their share of honesty. In case of Chinese pragmatism, achievement of their goals forms the main focus and sentiments are not involved in business transactions (Jia et al., 2016).

This cultural difference between China and Japan invokes more flexibility and greater power of negotiation to the Japanese entrepreneurs. However, they avoid radical confrontations because of their trust on their suppliers. Chinese entrepreneurs can be fierce in their transactions because their decision-making is devoid of sentimentality and collaboration with their subordinates.

• The case study of Guangzhou Honda Automobile Co Ltd

Honda signed a joint venture agreement with Chinese Guangzhou Automobile Group in the year, 1998. It was based on 50:50 partnership investments. Honda had obtained the right to undertake production and sell automobiles within China (China Daily, 2010).

The Chinese government has imposed the rule to use only local suppliers in the production process of automobile manufacturing. The government wanted to encourage local producers and curb down foreign imports. This motive was also driven by their guanxi, as they did not trust the foreign companies to interfere in their network. It became a major challenge for Honda to incorporate as much as 40% local content rule (Chinese government has formulated the rule that a foreign company doing business in China will have to employ 40% Chinese employees in their first year of production) because the technology and the brand of Honda required certain quality standards, which in an unknown business environment was very difficult to implement (Huang, 2013). In order to overcome this challenging situation, Honda had visited more than 1000 suppliers in China and had ultimately narrowed down their selection to 67 suppliers. During this time, Honda was sustaining its capital expenditure from the profit earned from its motorbike business. Honda, prior to its joint venture with Guangzhou Automobile Group, was already engaged in production of motorbikes in China where the local content ratio was already around 90%. This benefited Honda to employ some of the highly skilled suppliers from its motorbike production to the car manufacturing process (Zhao and Gao, 2009). This transfer of suppliers made the adaptation procedure smoother, because they were already familiar with the Japanese organizational culture.

Honda’s new suppliers and employees were in need of training to develop their ability so that they could adapt to the new form of culture. This training was carried out in the Wuyang Honda Motorbike factory (Annual Report, 2014).

The joint venture company had to start on a relatively small scale because of the outdated infrastructure at the Chinese factories (makes of 1970). Most of the machines were built in France, China and Italy. Hence, in order to put them to use Japan appointed expatriates from its own country. The expatriates from Japan were the last generation of works directly trained under Soichi Honda (Honda’s founder) and belonged to the age group of 50-55 years (Zhao and Gao, 2009).

• Adaptations made in Guangzhou Honda Automobile Co Ltd

Honda was bound by the rule that in order to start their production they had to employ 40% of local workforce including suppliers. This stalled the quick manufacturing of the company because they had to hunt for skilled and trust worthy workers and suppliers. Japanese work culture is driven by mutual trust and harmony while the culture of guanxi and mianzi provides for fulfilment of personal goals. Sharing of competitive information was beyond the company policy of Honda and they wanted to bind the employees in long-term contract, so as to prevent turn-over and leakage of their technological know-how. A substantial part of the initial investment was devoted in the research and development of building new car models (Honda, 2016).

Honda introduced the concept of hierarchical pay structure in the joint venture company. Chinese employees were not given such opportunities to grow because of the power gap at each successive level of management. The policy of remuneration and performance appraisal at the end of each year’s audit evoked great motivation to the Chinese employees. When Honda has signed the joint venture, the staffs were demotivated and there was wide spread disorganisation within the structure of the company (Fernandez, and Shengjun, 2011).

Training programme of the company played a very important role in bringing reconciliation between the two different organisational cultures. Chinese workers were habituated with the old and obsolete machines, so, in order to introduce them to the Japanese technology and way of working, Honda started to provide training. This not only improved their existing skill but also helped in building trust and fellowship. This practice still continues in the company. In 2014, total number of staffs trained under their company was 396,200 (Annual Report, 2014).

The distributional network is an important part of the entire supply chain management. However the Chinese automobile industry failed to establish a stable distributional network. The underdeveloped infrastructure and transportation plagued the distribution system for the automobile industry in China. The car manufacturers in China used to operate through state owned dealers because there was uncertainty regarding payments for the accounts received. The customers did not have any contact with the manufacturers. In case of after sales services, customers were to go to the state owned service centres. Guangzhou Honda broke this system of state intervention in the distributional network. They established their own distributional network by setting up numerous “special service shops” which were specifically designed to sell cars manufactured by Honda and Guangzhou Honda only. These shops also provided the necessary after sales service required by the customers. Guangzhou Honda came in direct contact with the customers and the sales agents were skilled enough to render required help to the customers. They also gave importance to the customers’ demand. The management at Guangzhou Honda used to collect customers’ feedback and circulated the same to the engineers and quality improvement committee. This helped the company in educating the Japanese engineers about the preference of Chinese car users (Reuvid and Yong, 2006).

Honda believed in a strong relation with the suppliers and hence, drive by the Japanese culture the joint venture company established strong bond with the suppliers. This helped Guangzhou Honda to start production quickly by placing orders for large quantities of raw materials (Automotive Logistics, 2015). The investment made by Honda helped in suppliers’ localisation especially for getting core parts. The joint venture company started incorporating increasing use of technology in its daily production starting from distribution network to its logistics (Zhao and Gao, 2009). The software that they incorporated for logistics management was imported from USA. The structure of the logistics of Guangzhou Honda was totally based on Japanese style. They used the USA software to decrease the logistics cost, facilitating expansion of market share (Zhao and Gao, 2009).

Honda invested substantial amount to set up a local transmission manufacturing base in Guangzhou. This made importing of components no longer a necessity with respect to transmission. The supplier and transmission localisation have helped Guangzhou Honda to get the necessary support for setting up a strong footing in the Chinese market. The products from the local suppliers not only helped the joint venture company but also were utilised by Honda for the purpose of export. For example, the glass seat and engine were exported by Honda to other countries (Zhao and Gao, 2009).

• Conclusion

Japan and China have distinguishable organizational cultures. Japan depends on trusted and collaborating employee-employer relationship. Japanese managers work together with the employees and suppliers by creating a friendly working environment. Chinese organisation structure is built upon traditional values. Chinese people have trust issues when it comes to employing people not related through family ties in the business processes. This societal set up has its profound business implication. Workers in China have the freedom of taking their contacts along with them while switching jobs and can also share employment information within their trusted network. China’s hierarchical structure does not allow its employees to confront their superiors directly and are trained to follow orders without questioning.

When Japan entered into a joint venture with China, the Japanese company, Honda had to face the challenge of adapting itself with the changed business environment and culture. This resulted in the formulation of a hybrid culture with the joint venture organization. Guangzhou Honda applied the Japanese culture to overcome the cultural difficulties in China. According to the government rule of employing 40% local component in the first of production, the production of Guangzhou Honda was stalled because Honda had to maintain a particular standard in choosing suppliers and employees. Guangzhou Honda was the first of its kind to break the traditional state intervention in distribution system. Today Guangzhou Honda ranks among the top five companies operating in China. The incorporation of Japanese management culture in Chinese Business environment paved the way for Guangzhou Honda’s success.

• Reference List

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